Embracing Financial Responsibility

M'kisha Shell is facing single parenthood and fiscal challenges head-on

there won’t be painless. Here’s what Brackens recommends:

Make sacrifices. Brackens says Shell must build a cash reserve immediately. Six months of expenses would be ideal. The $2,000 contest winnings should go toward this goal. Throughout the year, child support payments should also be allocated to savings. Brackens suggests Shell take her things out of storage and apply that $40 a month toward savings.

End credit card splurges. “M’kisha recognizes that impulse buying was a major contributor to the creation of her credit card debt,” says Brackens, adding that, “She will commit to not purchasing any new clothes for herself for the next 12 months. It’s a sacrifice, but doing so will allow her to accomplish building her cash reserves.”

Continue reducing debt. “Reducing debt and the cost of servicing that debt is key to her future,” says Brackens, who recommends Shell investigate consolidating the credit card debt into a lower interest, fixed-rate loan.

But first, Shell should capitalize on the tax refund that she will get this year. That money should be applied to her credit card debt, paying off the highest interest rate cards first. When she begins to see the savings from the decrease in child care expenses, that money should go toward debt reduction and savings too, says Brackens.

Get tax advice. Shell should see a tax adviser or follow these tax strategies that could work in her financial favor:

Change her tax filing status to head of household, which should lower the amount of taxes taken out of her paycheck throughout the year.

Itemize her deductions rather than filing the short form to take advantage of the child tax credit and her deductible student loan interest.

Claim the saver’s credit, which is a nonrefundable income tax credit for contributing to her tax-deferred retirement savings plan. This credit is in addition to the income tax deduction she receives for making contributions to a qualified retirement plan.

Plan for the future. Shell should meet with an estate planning attorney to discuss drawing up a will with guardianship provisions for Kayla, a durable power of attorney, and a healthcare proxy/declaration and/or a living will, says Brackens.

Given that her ability to work and earn a living is her greatest asset, Shell should purchase additional disability insurance to supplement what is provided by her employer and needs to re-evaluate her life insurance coverage. She has a total of $280,000 in term insurance through her employer and a policy on her own, but Brackens thinks an additional $515,735 of coverage would be appropriate to provide for the future needs of her daughter.

Rethink investments. Brackens recommends Shell reposition her asset structure to more closely mirror her risk tolerance: 25% short-term bonds, 5% U.S. aggregate bonds, 10% U.S. high-yield bonds, 20% large-cap value, 20% large-cap growth, 5% mid-cap growth, 5% mid-cap value, and 10% international equity.

Brackens says, “M’kisha is taking control of her life and preparing for the future. She’s put action behind her faith–that is the true evidence of a shift in behavior.”
Financial Snapshot: M’Kisha Shell

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